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Wednesday, April 18, 2012

Suzlon Ltd: Steady Upmove expected in the short term
I think Suzlon Ltd (CMP: Rs.24.10) has bottomed out today and it has won a number of orders very recently. It is the fifth largest company in the world making the wind turbine and wind generators. The company has an order back log of around Rs.390 billion (1 Billion= 100 Cr) as of now. Suzlon Group reported 1,490 MW of highest ever order inflow in Q3FY12 among the geographies like India, North America, Europe and Brazil that improves visibility for FY13E. The order backlog of 5,755 MW (Suzlon WTB 2,407 MW + REpower 3,348MW) will be executed in FY13E & 14E. Suzlon Ltd, India's largest wind turbine manufacturer is expected to garner about $40 million by selling its non-core assets, by May, 2012, after completion of due diligence and requisite approvals. According to a company official, "This is a modest but important step forward in our strategy to optimize our capital structure and meet our repayment obligations this year". The wind farms of Suzlon Ltd are located across India, with majority of the assets in Tamil Nadu. Recently, Suzlon Energy's Germany-based arm REpower Systems SE inked an agreement with a consortium of banks, led by Bayern LB, Commerzbank Aktiengesellschaft and Deutsche Bank AG, for a syndicated loan of 750 million euros (about Rs 49.17 billion, where 1 billion= 100 crore). So, this would help the company to solve the FCCB issue. In the current year (FY13), the company needs to repay holders of its foreign currency convertible bonds $360 million in June and $209 million in October.
Last month there were media reports that the French engineering conglomerate Alstom SA is evaluating a potential offer to acquire its subsidiary REpower Systems. The report which appeared in the Financial Times Deutschland said, without quoting sources, that Alstom is working on an offer to buy REpower. According to Financial Times Deutschland, Alstom has been given exclusive access to financial data of REpower which may be sold to the company for 1.5 billion euros ($2 billion). Sector experts said that Suzlon may not consider complete exit in REpower, which is the biggest growth driver for the company. But strategic investors may not be interested in a minority stake in the company. In 2007, Suzlon Energy, through its subsidiary AE-Rotor Holding B.V., acquired REpower Systems to expand its presence in Europe and to get access to the company's technology. Although Suzlon gained management control of REpower, it was not allowed access to the company's technology as the German law does not allow it in the interest of minority shareholders. Suzlon succeeded in completing the acquisition of REpower in September 2011 and made the latter a 100%-owned subsidiary. 
A company of such magnitude cannot trade at Rs.24-25. Since you have got the share at such a low price, you should buy it and keep holding. These are some of the very few occasions when you can buy the share of a leader at such a price. 
Last time also, if  you remember, I recommended the scrip at around Rs.22, after which a number of analyst started to recommend and the scrip touched Rs.31. This time also similar thing will happen, as the company continues to build its strong order book positions.
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